29 March 2011 CommsDay Summit Sydney

NBN Wholesale PricingThe devil in the details - Simon Hackett - MD, Internode

Flurry of NBN Legislation

✤ Quotes from CommsDay this week:

✤ Xenophon also managed to win government support for a restriction over NBN Co’s ability to offer volume discounts

Flurry of NBN Legislation

✤ Quotes from CommsDay this week:

✤ The Federal government has offered a written guarantee to cross-benchers Tony Windsor and Rob Oakeshott that NBN Co will supply uniform wholesale pricing across all broadband technologies, including for above entry level products

Pricing NBN Access:‘Uniform’ vs ‘Fair’

NBN Cost Model Is Complicated

“Worked Examples” Provided To Simplify Understanding

Impact of ACCC POI Decision

✤ Adds about $1.46 per cust per month✤ @ 250,000 customers

✤ based on reasonable input value estimates

Total Access Cost Per Month

✤ $25.82 + $1.46 = $27.28+GST per month✤ (at 250,000 customers)

Tenable At Face Value

✤ $27.28+GST per month✤ As input to (say) $60 per month retail price

✤ For broadband + phone ($30+$30)

✤ Entry level speed (12), Entry level quota (30G)

Why model @ 250,000 customers?

So:How Many National RSPs?

5

Why?

High Overheads In The Model

✤ $455,000 per month (NBNCo CSA, CVC, TC, NNI etc)

✤ Absolute minimum required for acceptable performance

✤ Likely to be an under-estimate due to CVC burst requirements

✤ $365,000 (est.) per month (ACCC POI Decision)

✤ Total of approx $820,000 per month of overheads to ‘play’ on the NBN

✤ Annualised cost of almost $10 million (Plus GST)

✤ Around $100m in total overhead cost over the 10 year build period

Artificial Scarcity In The Model

✤ Prices simulates scarcity in a network built with fibre abundance

✤ Copies Telstra Wholesale ADSL smoke and mirrors price structure

✤ Linear CVC cost is ‘bad monopoly’ concept ($20,000/Gigabit!!)

✤ ’50 kilobits free’ (18G/Month) hides the monopoly rent CVC rate

✤ Charging $38 for 100M vs $24 for 12M port also monopoly rent

✤ Singapore circa $17 for 100M

✤ Should copy the competitive industry dark fibre price structure

High Overheads Prohibit Smaller / New Entrants

Not viable to operate below 250k customers

CVC Price Stops Content Growth

Costs skyrocket with increasing usage

The Solution

✤1) Review the ACCC POI Decision ✤ Composite (14+122 POI) Model✤ Enable more direct RSP participants✤ Enable all players to service regional

The Solution

✤ 2) NBNCo charge a higher port price✤ Circa $29 per customer per month

✤ Slash CVC pricing (or just remove it)✤ Deliver 100/40M as the $24 offering

This will help us to achieve“The Future We Were Promised”